Housing is back, and the best-positioned home builders are about to take off. You just have to know which ones.

The thing that has united financial bubbles over the years is that nobody needs the commodity at the heart of them. Tulips, Internet stocks, even gold. Gold is deflating quickly right now not because the jewelry industry or the speaker-wire industry or the hip-hop-teeth industry suddenly needs less of it. It's collapsing because the people who bid it up in the hopes that someone else would bid it further are losing confidence.

What happens when the bubble being inflated is not a useless commodity but instead something Americans want, need, and are willing to pay for even in the worst of times? That's what we're finding out now. Stock prices for home builders in the United States went up 1,100 percent from 2000 to 2005. You'd think we were talking about a highly speculative field. People who couldn't afford one home bought a second as an investment property. And people who could afford a home borrowed 90 percent — even 100 percent or 110 percent — of the "value" of those homes. You have to put value in quotation marks, because the only relationship between those numbers and reality was that there were other suckers willing to pay those crazy numbers.

The housing market collapse that began in 2007 (and shaved 85 percent of the peak value of home-builder stocks by 2009) is, as far as I can tell, the first time in history that a basic need became subject to speculative frenzy. I will get angry e-mails from market historians who want to talk about the Famous Salt Frenzy or the Vitamin C Panic of 18-whatever or even the Japanese corporate real estate bubble economy of the late '80s. But I would argue that while the underlying assets in those market frenzies were valuable compared with, say, tulips, their real value was as a proxy for what else they could be traded for, not for what the actual salt or vitamins did for their investors.

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That's why the housing bubble was different. Even people who lost much of their investment stayed in their homes, underwater, for years — in many cases to this day. This was a speculative investment that was also an investment in a basic human need. But that's also why the collapse of the bubble offers unique opportunities. We're seeing the housing market reconnect to actual values — and actual needs — which in turn is about to unleash massive forces that will drive the shares of home builders higher.

There are three reasons for this: 1) a vast pent-up demand—for example, there were only 451,000 single-family housing sales in April compared with a normal range of 750,000 to 800,000, according to Goldman Sachs; 2) an extreme supply shortage (only 4.1 months of new home inventory as the summer began); and 3) a pendulum shift by the banks from reckless lending to miserly, and recently back to rational.

Now Goldman, a firm that did as much to inflate the bubble as anyone, has released a report on the home builders that is so in line with my thinking it's as though it were plucked from my heart. I don't believe home building is a sector that can be invested in across the board like a SPDR — especially now, as the effects of the speculative frenzy are still settling. You've got to do some stock picking here, because a builder that owns land purchased at the peak in a failing city faces very different prospects from a builder who snatched up key parcels cheaply in a fast-growing market. The bottom line: The best-rated builders ought to grow about 24 percent over the next 12 months, according to Goldman, while the dogs will actually fall 3 percent.

Goldman concludes that the most advantageous markets are Charlotte, North Carolina; and Jacksonville and Orlando, Florida; the worst are New York, Philadelphia, and Chicago. The builders with strength in the good markets have the best shot at a run. My favorite stock in the group is Toll Brothers (TOL), which has been taking share from rivals. Goldman's other two picks are Ryland (RYL), which shows strength in Charlotte and is trading at a deep discount to its expected multiple, and Meritage (MTH); the ones it hates are Hovnanian (HOV) and Pulte Group (PHM), which actually get rare sell ratings.

The story is easily told — high demand for a must-have product, low supply, and still small price. It's a can't miss. But that's the thinking that started the bubble, right? The big risk, of course, is the economy. Interest rates are finally rising. A big jump, though unlikely, is not out of the question. There's never a foolproof story. But if you pick well, the story here smells better than tulips: The top home builders today give you the best shot at a winner.

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